CEO's statement

CEO Per Samuelsson's comments on Financial Statement 2018

BEIJER GROUP'S new strategy, set in 2016, is sound and generating tangible successes, as demonstrated by our financial results. For the full year 2018, order intake and sales were up by nearly 30% and 20% respectively, resulting in our EBIT quadrupling, and our loss from 2017 transforming into a positive profit after tax in 2018. This turnaround also means that we can propose to resume dividends to our shareholders.

We’re satisfied with much of what has been achieved in the past years. Our adaptation—after Beijer Electronics’ business with Mitsubishi Electric concluded in 2016, with the loss of yearly sales of some 300 MSEK—brought cost reductions and rationalization, offset by major product development initiatives and organizational changes. We now see that in 2018, the Group converged on its previous sales record from 2011. The Group’s order intake of 1.6 billion SEK is its highest to date. Earnings trends are heading in the right direction. However, given the sales, profitability in the quarter should have been higher. This rapid growth, which is exclusively organic, beat our own challenging expectations, but has presented us with several challenges. Capacity utilization, and capacity shortages, are very significant to earnings. Even if the growth of our order intake and sales accentuated in the fourth quarter, our earnings were impacted by temporary imbalances between capacity and shipments. Nevertheless, the Group was able to improve EBIT from 3 MSEK to over 20 MSEK in the period.

The Beijer Electronics business entity provided most of the Group’s earnings gains. This entity went from strength to strength in the year, with high growth and progressively improving earnings. The successes are backed by new products and solutions, as well as a more customer-oriented sales organization. This business entity’s recovery and continued expansion are an important component of the Group’s longterm value creation.

The Westermo business entity delivered its best year to date, with record order intake, sales and earnings in 2018. It is primarily Westermo’s focused initiative on networks for trains that underpinned the successes. But its high growth—30% in fourth quarter—also triggered supply chain problems. Westermo put shipments to customers ahead of efficiency and are increasing capacity for continued growth. This resulted in unusually high costs in the short term. We estimate that these extra costs impacted Westermo’s EBIT margin by 5 percentage points, or 8 MSEK in the fourth quarter. But what’s important in the long term is that we were able to fulfil our commitments to customers.

In the year, the Korenix business entity focused on recovery of its operations with a partly modified strategy. Korenix is heading in the right direction, with several new deals with major, important customers. Order intake was up by 20%, and sales by 13% in 2018. Sales in the fourth quarter were impacted by several customer decisions to defer shipments until the first half-year 2019. This meant that Korenix had excess capacity and high expenses, and posted a MSEK 4 loss for the period.

We collaborate with some of the world’s most innovative companies, and have major global demanding customers like Alfa Laval, Bombardier, Alstom and Emerson. Their repeat orders, and us securing new business customers, are evidence of our international competitiveness, and that we offer products and services that are well timed.

Our solutions bridge the interface between people and machinery. Data is captured, managed, transported, presented and analyzed in interactive and seamless processes between humans and machines. Our solutions help customers optimize their processes at different levels of their business.

Being at the leading edge and addressing customers puts challenging demands on our organization and people. I want to emphasize the importance of our people’s efforts and competences especially. Individual professional performances, backed by mutual support and access to our corporate resources, has generated our results and creates our new platform for continued expansion.

In 2018, the Group spent over 160 MSEK on product development, which is enhancing our offering to the market. In 2018, Westermo decided to improve its current strategy for the coming years, based on our successes in the Rail segment and the business entity’s current product range. This involves initiatives in network solutions targeting the Rail trackside and Power distribution segments. Westermo already has some sales in these segments, but to address the whole market, investments and upgrades are necessary. In time, we expect this initiative to make a major contribution to the Group’s and business entity’s growth, sales and earnings.

Within Beijer Electronics, we are launching our new Fast track to the cloud solution with BoX2 in 2019. This solution integrates software and hardware, and is an Industrial Internet of Things (IIoT) application, offering easy connection to existing automation equipment. BoX2 and associated services will be marketed through a Software as a Service (SaaS) revenue model, with hardware invoiced on delivery and software with a subscription fee.

The Group’s new strategy from 2016 has more than achieved our target of minimum yearly growth of 7%. We are converging on our target of a 10% EBIT margin. These new initiatives are investments to safeguard continued high organic growth, and also bring an opportunity to upgrade the Group’s growth and EBIT margin targets.

We’ve started the new year with a healthy order book. The capacity problems that occurred in the fourth quarter are still being addressed, and will have a progressive impact. For the full year 2019, we think the Group will still be able to increase sales and earnings compared to the figures for 2018.

Per Samuelsson
President and CEO